Mother of five Mariam Abdullah borrowed £12,000 to pay for her eldest daughter to get her master's and PhD from the University of Oxford. She didn't turn to a bank for the money though; instead an informal, unregulated and unprotected lending scheme run by her local community in north London.

"I knew the bank wouldn't give me a loan because I had a poor credit rating, so I turned to my local community for the money," she says. She's not the only one: with public trust in commercial banking at an all-time low and some payday loan companies charging 4,214% APR, minority communities are finding alternative ways to borrow large sums of money, and many are turning to each other.

"I had no contingency plan," Abdullah says. "If my community didn't lend me the money then my daughter wouldn't have been able to go to university." Instead, she borrowed the money and repaid it over a year. Her daughter went to Oxford, gained a PhD in Islamic banking and finance, got a job at a "magic circle" law firm and is now a published author. "I've borrowed money multiple times since then and I trust the people I do it with. There are no hidden fees and it is pretty stress-free," Abdullah says.

The scheme may be stress-free, but it is also unregulated. The Financial Services Authority (FSA) warns that with any scheme like this both savers and borrowers are not subject to any of the same protections afforded to them if they were dealing with a traditional bank or lender.

If a scheme collapses members are not covered by the Financial Services Compensation Scheme so will lose their money. There is also no access to the Financial Ombudsman Service, which deals with financial complaints. Nor are participants subject to the same stringent credit and affordability checks as those wishing to borrow from peer-to-peer lenders, which put borrowers and savers who do not know each other in contact, usually via the internet.

An FSA spokesperson said: "These schemes are very high risk and our advice to participants is do not invest any money you wouldn't be prepared to lose." Despite the risks, the FSA is aware such schemes are becoming increasingly popular and are gaining momentum.

Organisers say the schemes may be more common than people realise, because they are only spoken of behind closed doors. Participants are reluctant to advertise that they have large sums of cash on the property for fear that they might get burgled, while organisers are scared of what the government and financial institutions would do if the schemes ever came to light.

How they work varies. In a scheme like that which Abdullah used, 10 people, usually friends or family, each agree to pay £100 a month into the scheme for 10 months. Each month one member of the group receives a lump sum of £1,000 to spend as they like. The order the participants receive the money is decided in advance, and irrespective of whether you are first or last you must continue to pay your share each month. The amount paid in and the length of the repayment depends on the amount individuals wish to borrow and how much other members of the group can afford to pay.

Khadija, a Somali-British woman and an organiser of another scheme in London, says they are run by all sorts of communities across the UK. "Indians, Arabs, Sudanese, West Indians, Filipinos, etc. They all do it," she says.

Different communities call it different things: the Caribbean communities call it Pardner; Somali communities call it Ayuto; and other African communities call it Sou Sou.

Such schemes have existed for generations with participants using the money for anything from putting down a deposit on a house or paying for an education, to covering the cost of a wedding or even as small business loans.

Much like peer-to-peer schemes they are built on mutual trust and benefit. "Nobody loses out and it's our duty as part of the community to help each other," Khadija says.

The reason such schemes are so popular among minorities, she explains, is that unlike most financial arrangements there is no interest, no handling charges and no administration or late fees. It also means people can avoid loan sharks.

For a while the schemes fell out of favour with minority communities because bank accounts, credit cards and Isas are now easily available to all. However, Khadija says that since the financial crisis the number of people returning to the schemes has increased. "I get lots of people asking if they can become part of it, but I have to be careful about who I get into it with," she says.

Tobi, who is originally from Nigeria, started using such schemes while at university in Leeds. "It was very helpful for expensive things like buying a new laptop or car insurance," he says. "At 27 I am the breadwinner in my family as my Dad is too old to work. So I have to pay the mortgage and these schemes are so helpful."

Tobi says there are similar schemes among Nigerian communities called Ajo, but these operate more like traditional financial institutions in that the organisers turn a profit. The basic workings are the same as those described above, except Ajo runs in cycles which never last more than a month.

During that month an "Ajo Collector" organises the scheme and collects a one-off fee from individuals taking part as a service charge. Clients can never exceed the amount they contribute during the cycle, so if you only contribute £100 during the month you can only borrow £100.

Because these schemes are not publicised it is hard to get a sense of how often they go wrong, and how many members have lost money. Mohamed, a scheme organiser originally from Kenya, insists they rarely go awry. "We screen people before they are allowed to join and we make sure everyone can afford to pay," he says.

Mohamed says because everyone within the group is either a close friend or a member of the family, the bonds of trust and respect between participants is strong. "It has always worked and it is the best thing we have found," he says.